ESG will mitigate the risk to UK companies of international environmental, health & safety and human rights claims brought in the UK courts
Perhaps the answer to a company’s and its stakeholders’ concerns about claims of this nature lies in ESG.
The jurisdictional path for large groups of foreign nationals to bring actions in the UK against UK registered entities in connection with damage and loss suffered overseas due to subsidiary operations is becoming firmly established. But will the growing seriousness with which UK companies take ESG matters serve to greatly reduce their susceptibility to these types of claim?
Background to international environmental, health & safety and human rights claims
Over the last decade, an increasing number of environmental, health & safety and/or human rights claims have been brought in the UK by groups of claimants living overseas alleging damage and harm caused overseas by the local subsidiaries and/or operations of UK headquartered organisations.
Cases have been brought against, for example, Trafigura, BAT, Dyson, Olam, African Minerals, Unilever, Shell, Vedanta and BHP, arising out of subsidiary company operations in Cote d’Ivoire, Malawi, Malaysia, Ghana, Sierra Leone, Kenya, Nigeria, Zambia and Brazil respectively.
The cases have met with mixed success to date. Some have settled before trial, some have been defeated at trial or at early procedural stages. However, there have been some important judgments along the way, in particular the Supreme Court decisions on jurisdiction in the Vedanta and the Shell cases where the procedural bar for the overseas claimants to overcome in order to be able to bring their claims here in the UK in respect of harm and damage suffered due to subsidiary operations overseas was set rather lower than it could have been.
Some cases are ongoing, in particular those against Shell, (which has arisen in connection with alleged environmental damage arising from its subsidiary operations in Nigeria), and BHP, (which has arisen in connection with alleged environmental damage arising out of joint venture mining operations in Brazil).
The latter is at a very advanced stage, trial in the High Court having commenced in October 2024. It is expected to last into the New Year. The group of Brazilian claimants in this case is over 600,000 strong and the trial is taking place nine years after the event that gave rise to the damage and loss for which compensation is claimed took place.
The outcome in the Shall and BHP cases is eagerly awaited. Victory for the claimants could herald a great many more similar cases being brought in future. The cases thus far have disproportionately focused on the subsidiary operations of large UK headquartered mining and energy companies, but they could in principle be brought against other types of company with operations and supply chains around the world. For example, UK companies in the travel and tourism space often have large international networks, as do companies involved in international transport and logistics.
Impact of the cases
What is abundantly clear from the judgments and commentary connected to the cases mentioned above is that they are far from straightforward or routine to defend. They involve large, (and in some cases extremely large), groups of claimants, very significant potential liabilities in damages and costs, complex evidence gathering and reputational risk. The claims are marshalled by experienced UK claimant lawyers and funders, operating on their “home turf”, who can bring significant commercial pressure to bear on defendants.
The reaction to these claims
An instinctive response of a UK parent to the possibility of these claims might be to distance itself as much as possible from the overseas subsidiary and operations, making it harder for it to be targeted in the UK courts for overseas damage and harm. However, this is more difficult to achieve in practice than one might have thought, especially following the Supreme Court decision in the Vedanta case referred to above.
Perhaps the answer to a company’s and its stakeholders’ concerns about claims of this nature lies in ESG. Large UK based companies like the ones targeted in these types of claim are becoming subject to increasing amounts of mandatory sustainability reporting and disclosure on a comprehensive range of social and environmental factors. The reporting is forward looking in nature and demands information not just in relation to the risks and opportunities that these factors present, but also the governance structure that has led to them being identified. These reporting and disclosure requirements lie at the very heart of ESG.
Companies responding properly to the new requirements will scrutinise the parts of their organisation and their supply chains that might expose them to claims of this nature and take appropriate mitigating action, e.g. by invigorating group wide standards and weeding out riskier suppliers from the supply chain.
Thus, if taken seriously, the reporting and disclosure requirements should trigger the change necessary to ensure that the circumstances giving rise to these claims will emerge far less frequently. Good news for the company, and good news for its stakeholders – including insurers.
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